Sacramento daily record-union. [volume] (Sacramento [Calif.]) 1875-1891, 1887-12-17
THE WATER WORKS FUNDS.
Letter from Judge H. o. Beatty as to
Effects of the Late Decision.

Letter from Judge II. o. Beatty as to
Effects of the Late Decision.
EDS. RECORD UNION: There is some dis
cussion about the Bates Water Works de-
cision recently made by the Supreme
Court, and the effect it is to have on our
city taxes, debt, etc. There seems to be
general impression that the decision is dis
astrous to the city. That it will increase
our rate of taxation without any CORE
spending benefit to the city. This | think
is a mistaken view of the case. The
following points were before the Court for
its decision
First-Are the bondholders entitled I'M
der the Funding Act to So hundredths of
the gross receipts, or only So hundredths of
the net income from the water rates?
This point was decided in favor of the
bondholders, and against the city.
Second-Could the Treasurer be COM
PEELED to set aside, for the interest and sink
ing fund, So hundredths of the gross re
ceipts from water rates which came into
his hand during the fiscal year in which
the suit was brought to wit from April l,
1885, to January 30, 1886, the day the COM
plant was filed?
This point the Supreme Court decides
against the bondholders, and in favor of
the city.
Third-Could the Treasurer (under this
mandamus proceeding) be compelled to set
aside for the benefit of the interest and
sinking fund fifty-ive hundredths of the
gross receipts from the water rates that
come into his hands pending this litiga-
ton, to wit: between January 20, 1885, and
the day the judgment will be entered up in
the Superior Court, to wit say about Janu-
airy 1, 1888?
This point the Supreme Court also de-
cided for the city and against the bond
holders.
There was a fourth point which was not
necessarily required to be decided in the
case, yet came up incidentally in the argu-
ment of Judge Thornton sustaining his
opinion, and is of great consequence 10 the
city. Judge Thornton holds in effect that
the passage of the Funding Act of 1853 the
issuance of the bonds hereunder, and the
acceptance of the same by the creditors
made mutual contract. The city on her
part undertaking to set apart certain rev.
enues for the payment of these bonds and
coupons in the manner prescribed by the
statute The bondholders on their part
agreeing to look only to this fund so set
apart for the payment of their debts, and
in no case ever to sue the city or attempt to
hold her other revenue or property re-
sponsible for the payment of these bonds
and interest. | have not given the Ian
guage of Judge Thornton, but | think that
is about what he means. If, then, am
not mistaken in his meaning, this puts a
quietus on the claim of Sam Davis and
others for interest on overdue coupons and
the bonds after they fall due.
The benefit that the city will derive from
the settlement of this point will certainly
be very great.
The decision of the second and third
points, If it had been against the city,
would have been very disastrous. 1t would
have embarrassed her finances and ip-
volved her in new litigation and trouble.
Fortunately she has escaped this embar-
rassment.
But how does the decision of the first
point affect the city? l think not at all
unfavorably. For the last three wears the
waterworks have been paying the expenses
of running them and paying into the inter-
est and sinking fund about $4,000 a wear
and the city general fund some seven or
eight thousand year. They have let the
gross receipts run down from SIC, 900 year
to about $4,000.
Now there is no necessity for this state of
things. 1t is true the tariff of water rates
has been lowered, bnt the increase in popu-
lation and the number of water-takers is
at least an Offset to this lowering of rates.
If the water works are properly man.
aged they will produce $4,000 a year.
This will give $31, 500 las per cent? to the
water works to run them an d $3S, 500 to the
sinking and interest fund, or about S29, 600
per annum more than that fund has been
getting from the water works for the last
three years. The general fund gets
about $500 a year. The other special
funds of the city will in no way be affected.
The general fund does not need that 81 500.
Prior to 1884 the Trustees only
levied so cents for the general
fund, and of this SO hundredtbs
or ~ cents went into the sinking and in
terest fund, leaving only 22I cents on the
500 for the general fund proper. Since
the Supreme Court ordered levy of 81 on
the hundred, As cents of that goes into the
general fund proper; just double what there
was paid into that fund prior to 1884
Surely this is enough for the general fund
after the $500 is taken out Besides,
the increased appraisement this year will
more than make up the difference. 1t is
evident to my mind that this decision will
not add one cent to the rate of our tax lew
in this or any future year.
1t will simply compel the proper colec-
ton and application of the water rates.
What effect will this decision have on the
price of bonds and the operations of the
Sinking Fund Commissioners There are
two plans now proposed for paying our city
debt The one plan--that of McKune and
McClatchy-is to repeal the Fund Commits
sioners Act and allow the bondholders to
draw annually Just what the law puts into
the interest and sinking fund until their
debts are paid There are in the hands of
the bondholders, in bonds and coupons of
both kinds, past due and future, about
81 100000. With the annual income of the
interest and sinking fund as it has been for
the last three years, it would take twenty
two years and half to pay this 81 900, 900,
upon the McKune plan. With the increased
revenue set apart to that fund by the late
decision, it would take sixteen years
to pay off the whole debt.
With regard to the Fund Commissioners.
the situation is a little different They
buy the bonds at discount. The effect of
this decision will, so far as the gross pro-
ceeds of the Water Works are concerned,
have the effect of raising the price. The
settling OF the interest question, on the
other hand, will have the contrary effect
Altogether, have no doubt the effect of
the decision will be to enhance the price of
bonds and coupons. Under the old income
of the sinking and interest fund without
any special tax for themselves, the Com
missioners could have bought up the debt
in about fourteen years. With the in
creased revenues from the Water Works
under the late decision, and higher valu-
alton of property, they can buy up the
debt in twelve years. Or, if they can get
the law amended as proposed last year,
they can buy it up in eleven years.
II. o. BEATTY.